I believe that ASX tech shares could be the best way to beat the market.
It's not just that 'tech' sounds sexy, but the financials behind the sector can be quite compelling.
Most technology businesses just take a lot of software development, a bit of computing power and some wages to get going. Older industries like resources or manufacturing require a lot of capital for factories, equipment and distribution.
Tech businesses are fairly capital light. That means that once they're breakeven, each incremental dollar of revenue is largely added to the bottom line. Further expansion doesn't require huge new manufacturing plants or another mine to be developed either.
Software as a Service (SaaS) businesses are particularly attractive because they typically receive monthly revenue from customers, which is a dependable source of cashflow.
That's why the following two ASX tech shares could help you beat the market over the long-term:
Citadel Group Ltd (ASX: CGL)
Citadel provides integral secure information management for businesses and organisations in a variety of sectors including defence, security, education and health.
A lot of Citadel's clients are government related, so you would think they are very likely to pay their bills in tougher times. Citadel continues to win new important contracts, which should mean growing levels of income over the coming years.
I am particularly attracted to the fact that not only is Citadel generating pleasing organic growth, but it's looking to expand offshore and also make the occasional acquisition to boost its offering, such as the recent acquisition of Gruden. The best mid-caps in recent ones have been the ones that successfully expand beyond Australia and New Zealand.
Citadel is trading at 24x FY19's estimated earnings, with a grossed-up dividend yield of 2.3%.
Altium Limited (ASX: ALU)
Altium could be the best tech share on the ASX. It is an electronic PCB design software business, which helps businesses and other entities help design the technology of tomorrow.
Some of Altium's current biggest clients include Tesla, Toyota, Google, Space X, NASA, Boeing, Lockheed Martin, CSIRO, Siemens, Microsoft, Amazon, Apple, Google, Qualcomm and Broadcom. An impressive list.
Altium aims to make its software the clear choice for engineers over the next decade, which could mean significant revenue, profit margin and net profit growth if it achieves those goals. It has nearly achieved the revenue goal it set a few years ago for 2020.
Altium is currently trading at 51x FY19's estimated earnings.
Foolish takeaway
Altium may be a great tech business, but it's also trading quite expensively. So for now I'm not buying any more shares. However, Citadel could be a good one to own for the long-term despite its recent strong run.
